I have been looking for FTSE 100 stocks to add to my portfolio for 2022. Three companies currently stand out to me as incredibly attractive opportunities, considering their prospects for the year ahead. I would acquire all of them for my portfolio today. 

FTSE 100 growth stock

The first company is the online car sales platform Auto Trader (LSE: AUTO). Over the past two years, the demand for second-hand vehicles has jumped, which has sparked significant activity in this market.

Auto Trader has benefited from this action, and analysts expect activity in the market to remain buoyant for at least the next year. 

At the same time, the company is developing its position as one of the premiere websites in the country for selling vehicles. Considering its reputation, I think it is unlikely it will be unseated as a driving force in the sector anytime soon. It has a substantial competitive advantage and awareness with consumers. 

Based on these qualities, I think the FTSE 100 stock has tremendous potential in 2022 and beyond. Challenges that could hold back growth include competition (despite its brand awareness, no business is completely immune from competition). A potential slowdown in the used-car market may also hit growth. 

International growth

In my opinion, one of the best companies to buy in the FTSE 100 with exposure to the global economy is Standard Chartered (LSE: STAN). 

The emerging markets-focused bank helps organisations around the world manage their finances. If the global economy grows, its revenues should follow. Rising interest rates worldwide may also allow the corporation to increase rates it charges to borrowers, pushing up profitability.

These twin tailwinds could help the enterprise outperform over the next couple of years. Few other companies in the lead index offer the same kind of potential. 

Still, despite its position in emerging markets, the company’s growth is far from guaranteed. Rising inflation could reduce growth in emerging economies as consumers hold back spending. Further waves of coronavirus may also prove to be a growth headwind for the lender. 

Recovery play

FTSE 100 airline group IAG (LSE: IAG) is another excellent way to invest in the global economic recovery. I think this company, which owns the British Airways brand, has potential, but it also has a lot of debt.

With this being the case, I would only buy the stock as a speculative position in my portfolio. If another coronavirus variant emerges, it could struggle to survive. 

However, in the best-case scenario, the airline group will return to 2019 levels of activity within the next few years. This will enable it to begin repaying debt and investing in growth initiatives.

The company may also be able to expand its network to capitalise on the global economic recovery and rising demand for air travel. In this best-case scenario, I think there is a high chance the stock could more than double my money. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Auto Trader and Standard Chartered. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Rolls-Royce (LSE: RR) share price looks cheap, compared to its trading history. At around 130p, the stock is trading at a significant discount to its five-year high of 375p per share. However, these figures only indicate market sentiment. They do not tell us much about the underlying business. 

Unfortunately, the fact is the underlying business has deteriorated significantly over the past couple of years. The pandemic slammed into the company at the beginning of 2020, and management had to take evasive action to stave off collapse. 

Rolls slashed thousands of jobs and sold off some of its non-core businesses. This suggests the company is now smaller than it was when the stock was changing hands at 375p. As such, it makes sense the shares are trading at a lower level. 

But with the company now well on the way to recovery, is the Rolls-Royce share price undervaluing the firm’s potential? 

Return to growth

According to the company’s latest trading update, it has returned to a positive cash flow position after making deep cuts to staff and operational costs. Although the company still expects to report a free cash outflow of £2bn for 2021 as a whole, free cash flow turned positive in the third quarter. 

In the year ahead, the company is looking to generate £750m in cash if flying hours reach 80% of pre-pandemic levels. That is a stretch, but it is not impossible. Flying hours in the United States surpassed pre-pandemic levels during the past couple of weeks. Activity on global long-haul routes is also recovering. 

Of course, there will always be the risk that another coronavirus variant will emerge to disrupt the recovery. This is probably the most considerable risk facing the company right now, and it is one that is virtually impossible to analyse and control. 

Still, if I overlook this factor for a second, it is clear that the Rolls-Royce share price appears cheap at current levels. 

Rolls-Royce share price value

If the company can generate £750m in cash for the year ahead, the stock is currently trading at a cash flow yield of 6.9%. This is above average for the company in the market. A more appropriate value would be a cash flow yield of around 4%.

This suggests the company could command a market capitalisation of about £17bn. In this scenario, the stock price could hit 240p. 

This is just a back-of-the-envelope-type calculation. As noted above, there is no guarantee the company will hit its cash flow targets. The outlook for the aviation industry is highly uncertain. It seems unlikely this will change over the next couple of years. 

Still, these numbers suggest to me that the company has significant potential. They also suggest the Rolls-Royce share price looks cheap at current levels. On that basis, I would be happy to buy the stock as a speculative investment for my portfolio. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’m searching for the best growth stocks to buy in 2022. Here are two top UK shares on my radar right now.

A growth stock for the e-commerce boom

The e-commerce boom has pushed the levels of online fraud to endemic levels. Lawmakers and businesses are fighting back and today, the Financial Conduct Authority announced it will be rolling out Strong Customer Authentication rules from 14 March. This will require shoppers to verify their identity when purchasing online, for example “through their banking app or a one-time passcode via text or phone call”.

This increased focus on fraud has plenty of upside as the levels of online shopping steadily grow. It’s why I’m considering buying GB Group (LSE: GBG) shares for my investment portfolio. This UK growth stock provides retailers and product manufacturers with address and identity verification services. Organic sales here rose 12.6% in the six months to September, latest financials showed.

GB Group also has a long record of double-digit annual earnings growth behind it. And I’m expecting the company (along with City analysts) to get firmly back on the front foot following a likely profits reversal in this fiscal year (to March 2022). I’d buy the business even though the introduction of online sales taxes could hit revenues hard if e-commerce volumes subsequently slip.

A top FTSE 100 share!

House price growth has been explosive over the past year. According to Halifax, the average UK property rose 9.8% in value in 2021, the fastest rate of annual growth for 17 years. However, Halifax thinks house price growth could slow “considerably”, given the prospect of interest rate rises to curb inflation, along with rising stresses on household budgets.

I own Barratt Developments (LSE: BDEV) shares. And the big question for me is whether or not property price growth will remain strong enough for the homebuilders to increase profits by a decent amount. I sincerely believe the answer is ‘yes’. In fact, I think the pace of growth could once again surprise to the upside in 2022.

Okay, the Stamp Duty holidays that boosted home values last year is no more. But a slew of other supportive factors remain in play to keep the market buzzing. Interest rates are still likely to remain well below historical norms, even if the Bank of England does tighten monetary policy.

Significant government support via the Help to Buy equity loan scheme remains in play. And, of course, a shortage of new properties entering the market should keep home prices rising nicely too.

These elements have driven yearly profits reliably higher at Barratt for a long time now. The only profits drop came in financial 2020 when Covid-19 hit sales and build rates and caused costs to balloon. City analysts expect the bottom line to continue growing healthily following this blip too.

However, the impact of rising costs on the builder’s profits can’t be taken lightly. But, all things considered, I think this FTSE 100 share is a white-hot growth stock for me to buy more of today.

Royston Wild owns Barratt Developments. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Last year, NIO (NYSE: NIO) stock was thought of as one of the most promising electric vehicle (EV) shares on the market. 

The Chinese company was primed to take over the country’s EV market with its attractive battery swapping technology. Initially, the group’s outlook seemed positive as management promised growth and rising demand. 

However, over the past couple of months, the outlook for NIO stock has changed dramatically. 

The outlook for NIO stock

A couple of factors have been influencing trading in the company’s securities over the past couple of months. The most important has become the regulatory and trade tug of war between China and the USA. 

The former is introducing new rules on Chinese companies looking to list in the US. Meanwhile, the latter is introducing new regulations to increase the transparency of US-listed Chinese equities. Chinese regulators are critical of these requirements. A high-profile casualty is DiDi, which is being forced to move its listing from the US to Hong Kong. 

Unfortunately, it seems likely the tug-of-war will remain the primary factor driving NIO stock’s performance over the next 12 months. Investors just cannot ignore the political risks involved. 

Still, when I look past these risks, I see a corporation that is firing on all cylinders. After a rocky start, production is increasing. It is clear there is a rising demand for the company’s vehicles, although it is struggling to meet this.

While this is an excellent problem to have, NIO’s issues are not all within its control. It cannot influence the global semiconductor shortage and supply chain crisis. As such, it could remain at the mercy of these headwinds for the foreseeable future. Some analysts have speculated that the semiconductor crisis could last until the end of 2023. Only time will tell. 

Challenging year ahead

Despite the supply chain issues, I think 2022 will be a year of growth for NIO, but I cannot say the same about the stock. Political issues will continue to drive trading, in my opinion. The market may continue to overlook the company’s operational performance in favour of these more significant headwinds. 

Therefore, I am not going to buy the stock for my portfolio in 2022. If there is one thing the market hates more than anything else, it is uncertainty. Right now, there is a lot of doubt surrounding NIO stock, and it does not look as if this is going to shift anytime soon. 

Instead of NIO, I would much rather buy one of the company’s peers, such as Tesla. This group is one of the world’s leading EV producers. It comes with its own risks, but is already profitable and is planning to increase output dramatically over the next 12 months. Compared to the Chinese business, it has a whole range of advantages. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I am looking to invest a lump sum of £75 a week to build a passive income stream for life. This might appear to be a small sum of money, but it could grow to become a substantial nest egg in the long term. 

Investing for a passive income

The strategy I plan to use to invest for income is relatively simple. I am looking to buy high-quality income and growth stocks and hold them for the long run. 

Using this approach, I will benefit from both capital growth and income growth. Overall, this should enable me to generate higher returns than I may otherwise be able to using a simple strategy based on buying income stocks. 

Of course, there is no guarantee I will be able to build a passive income nest egg. Neither is there any guarantee that the income stocks I choose will continue to produce dividend income indefinitely.

As dividends are paid from company profits, if earnings fall, the corporations may have to cut their payments to investors. This could leave a big hole in my income strategy. 

One approach I will be using to try and overcome this issue is diversification. By building a highly diversified portfolio of income and growth stocks, I believe I can reduce the risk that one dividend cut will have a significant impact on the overall performance of my nest egg. 

Income and growth

Hikma and AstraZeneca are examples of companies I will be looking to buy. These pharmaceutical firms offer dividend yields of between 1% and 2%. More importantly, they have a long track record of dividend growth.

They are also both investing heavily in their futures and this should translate into earnings growth, allowing the companies to increase their dividends to investors. Earnings growth may also translate into capital gains. This will provide a double tailwind of both income and capital growth in my portfolio. 

As a rough guide to the sort of profits I could earn using this strategy, I have estimated an annual growth rate of 10% on my money. At this rate, a weekly investment of £75, or £325 a month, could grow to be worth £66,000 within a decade.

If I then switched from income and growth to just income, I estimate I could earn an annual passive income of £5,300 on my money. This assumes I can acquire dividend stocks with a yield of 8%. Looking at what is available on the market right now, I believe this is possible, although it is not guaranteed. 

This is the strategy I would use to invest £75 a week and earn a passive income. It is not a waterproof strategy, but as the example outlined above shows, it could be possible to build a passive income of £5,300 per annum using this method.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Legal & General (LSE:LGEN) share price had a decent end to 2021, much like the FTSE 100 index. Over the course of 2021, the insurer’s shares rose by 12%. If you add in a dividend yield that for most of 2021 was in excess of 6%, it provided both income and growth to investors.

As I hold some shares already, I’m now asking myself whether I should stick or twist. I’m thinking that the Legal & General share price has much further to rise, so I’m very likely to twist and add more.

A rotation to value

Conventional wisdom appears to be that as inflation sets in, lower valued stocks providing jam today will do better than those promising jam tomorrow. Legal & General fits into the former category.

AJ Bell investment director Russ Mould said earlier this week: “Overnight US bond yields rose – reflecting expectations that the US Federal Reserve might go further and faster on rates if, as the market now seems to expect, the US economy shrugs off Omicron rapidly. This saw a rotation out of technology stocks as the prospect of jam tomorrow is less appetising when jam today is available more cheaply from undervalued stocks poised to benefit from wider economic growth.”

If correct, this bodes well for Legal & General. It is arguably still very much an undervalued UK share. The price-to-earnings ratio is 14.

Analyst expectations

Analysts at Jefferies have recently upgraded their recommendation for shares of Legal & General from ‘hold’ to ‘buy’, and raised their target price from 290p to 340p.

Upgrades to analyst expectations can provide an immediate boost to a company’s share price. It’s certainly a positive sign. Also, the target is comfortably ahead of the current share price. 

As a shareholder in Legal & General, I remain hopeful of further upgrades to analyst expectations. 

Other reasons the Legal & General share price should do well

Legal & General has built up an outstanding investments business, especially when it comes to offering consumers passive investing products.

It’s also doing very well in bulk annuities with major employers and expanding that into the US. In August 2021, the media also reported that the insurer plans to expand into China.

Why the shares might not perform

The big risk is how correlated the insurer and asset manager is with the UK economy. With inflation biting, consumer spending may fall and the economy may take a hit. That would be bad news for the shares. The company could also be hit by miscalculations of its annuities, which could negatively affect earnings. Last, as a financial institution, it could be at risk of a crippling cyber attack.

Overall, I think the Legal & General share price will go up this year as investors seek higher income and steady shares. It’s performing well and has exposure to long-term trends like an ageing population and increased needs for retirement solutions. 

I set a price target of 425p per share by the end of the year, based on predicted earnings per share times the current P/E ratio. That would be an increase of 40% on the current share price. If it happens this would be an outstanding result for a FTSE 100 company (but of course, I could be wrong!). Nevertheless, I’ll be looking to buy more shares in Legal & General for my own portfolio. 

Andy Ross owns shares in Legal & General. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’m searching for the best cheap FTSE 100 stocks to buy in 2022. Here are two brilliant blue-chips on my shopping list today.

Aviva

Aviva’s (LSE: AV) a FTSE 100 share that offers terrific all-round value at current prices. Costing below £5, the insurance giant trades on a price-to-earnings (P/E) ratio of just 9.4 times for 2022. At the same time it boasts a bulging 6% dividend yield. That far exceeds the broader 3.4% Footsie average.

Like all stocks, Aviva exposes investors to risk. Not only could revenues suffer if economic conditions in its key UK marketplace suffer (unlike general insurance, demand for life insurance tends to slip when times become tough). It also faces intense competition from the likes of other FTSE 100 shares M&G and Legal & General, to name just a couple of its big rivals.

However, I think there are more reasons for me to buy Aviva stock right now than to avoid it. There’s that exceptional value for one. I’m confident the insurer’s terrific cash generation should provide many more big dividends looking ahead as well. Furthermore, the company’s divestment of poor-performing overseas assets will improve profits and gives it more financial heft to improve its core businesses. Aviva’s cash-rich balance sheet is one big selling point for an investor like me. This also prompted Aviva to raise its share buyback target in December, let’s not forget, to a whopping £1bn from £750m previously.

HSBC Holdings

Buying banking shares could be a bumpy ride for UK share investors in the near term. The economic recovery is still vulnerable and the outlook for cyclical stocks like HSBC Holdings (LSE: HSBA) remains fraught with danger. The battle against Covid-19 remains taxing and lockdowns persist. At the same time, surging inflation is hitting business and consumer confidence hard.

Asia-focused shares like HSBC are also under threat from China’s deteriorating real estate sector. Property developers like Evergrande, Kaisa and Shimao are all struggling to repay their debts and fears are rising that this could spark economic chaos in China and spread to surrounding nations.

Could it be argued that HSBC’s low cost prices in these risks, however? The FTSE 100 trades on a forward P/E ratio of 10.2 times, after all. This sits around the widely-regarded bargain benchmark of 10 times and below.

I’m actually tempted to buy HSBC at current prices. That’s because I’m thinking the banking giant’s huge exposure to Asia could deliver spectacular long-term returns. Economic growth in the region is expected to outstrip that of the West, sending demand for financial products to the stars. And HSBC is investing heavily to make the most of this opportunity. For instance, it’s spending $3.5bn over the next five years and taking on 5,000 staff to build its Asian wealth business.

Besides, HSBC also offers splendid value from an income perspective. Its dividend yield for 2022 sits at a meaty 4.5% at the bank’s current price below £5. I also think this is a top FTSE 100 stock to buy today.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The past couple of years have seen soaring demand for delivery services. That has been good for Royal Mail (LSE: RMG). The Royal Mail share price began this year at more than double where it stood two years ago.

Below I consider what might happen in the coming year – and whether the shares could reach a new high.

Strong demand tailwinds

The company has benefitted from strong demand over the past couple of years. Business has been good, with shareholders set to receive a 20p per share special dividend this month alongside the interim dividend. The company has also been buying back shares. That should reduce the share count and so push up earnings per share.

At the interim stage, the company announced revenue growth of 7.2% compared to the same period the prior year. Basic earnings per share were 27p, up from 1.4p.

2022 outlook

The company’s outlook for the current year is also positive. It expects around £500m of adjusted operating profit at the Royal Mail division. That compares to £344m in the company’s most recent full-year results. In the General Logistics Systems business, the company forecasts modest revenue growth and an operating profit margin of around 8% in 2022. That is a bit of a fall from last year’s 8% adjusted operating profit margin. So I think earnings in that business division could be lower than the prior year. I expect that to be more than compensated for by the sharply improved outlook in the Royal Mail business, however.

Last year’s earnings per share of 62p were almost four times as much as the previous year. Based on the company’s guidance for 2022, I think we could see the same or better this year. That would put the shares on a forward price-to-earnings ratio in the single digits. That looks cheap to me. Bargain hunters in the stock market could help drive the share price higher.

But I also see long-term structural reasons to support a higher Royal Mail share price. The recent strong performance in Royal Mail could continue in coming years, I reckon. The growth in demand for parcel delivery – which is already over 70% of the total company revenue – could help drive turnover growth.

There are risks, though. The company has pointed out that higher labour costs and shorter working hours in 2022 could combine to drive up costs. That might hurt profits. I am also fearful of strong price competition in the parcels business driving down profit margins.

Could 2022 see a record Royal Mail share price?

The Royal Mail share price has climbed 44% in the past year, at the time of writing this article yesterday. But it still sits 18% below the high point it hit back in May 2018.

If earnings news stays strong, the company boosts its dividend again thanks to higher profits, and margin pressure in the parcels business eases, I reckon the investment case will strengthen. So I think it is possible that the shares could reach their previous high price once more in 2022.

But I think it is only a possibility. Strong earnings growth is already priced in by many investors, so it will be hard for the company to surpass their expectations. Margin pressure in parcels could get worse not better. A record share price might happen — but equally, it could get lost in the post.

Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

There is nothing like the starting the new year with a bang. Like these two stocks. Both released their trading updates earlier this week. These included upgrades to their performance outlooks and they are also ready to distribute special dividends. Does it get any better? I don’t think so. But just to be sure, I would like to take a closer look at both stocks before buying them. 

Next: FTSE 100 high-performer

The first is the FTSE 100 retailer Next (LSE: NXT), which has just upped its guidance for pre-tax profit for the full year ending January 2022. It has also provided a positive first guidance for the next financial year. This follows a 15% increase in its full-price sales for the current year up to 25 December 2021 compared to the last pre-pandemic year.

I find the huge 49% jump in its online sales particularly notable. Considering that we could reasonably expect a permanent shift in favour of online purchases in the near future, I think it is good sign that Next has made headway in this regard. Further, it will also pay a special dividend, which takes its dividend yield up to 3.4%, slightly higher than the 3.3% yield for the FTSE 100 as a whole.

However, I think the stock is worth buying only if these positives are not already priced in. As far as I can tell, they are not. The stock’s price-to-earnings (P/E) ratio is a little less than 18 times, just below that for the FTSE 100 index as a whole. In other words, the stock is cheaper than the average index constituent and its prospects look good. It is a no-brainer stock for me to buy now.

What could go wrong

However, I will buy it knowing that things could go very wrong. The pandemic is still around, what with new variants creating repeated fresh chaos. At some point, this may well lead us to another lockdown and there might not be as much government support available the next time. This in turn could lead to lower consumer spending, affecting non-essential retailers. If we add high inflation into this mix, the results could be even more disastrous. This is hopefully an unlikely scenario, but one that I need to bear in mind nevertheless. 

Greggs: FTSE 250 stock posts healthy growth

If this risk exists for Next, it does even more so for Greggs, the FTSE 250 bakery retailer. Unlike Next, which has seen massive growth in online sales, Greggs relies primarily on in-store sales. However, for now, things are going well for it. For the financial year ending 1 January 2021, the company reported a 5.3% increase in revenue from two years ago. Without providing any other details, it also said that the full-year outcome would be “slightly” ahead of previous expectations. It also expects to make a special dividend in 2022. 

Unlike Next though, the stock is quite pricey with a P/E of over 40 times and its share price is at multi-year highs right now as well. Going by the potential risks it faces, I am slightly less confident about it than about Next. I do believe that its full-year results could indicate a profit level that justifies the current price. I will wait though before buying the stock right away. 

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Early on in my stock investing journey, I focused largely on growth stocks. Dividends were incidental to me. I had pretty much my entire working life ahead of me, and I could dabble more in risky stocks and if they went bust, I had plenty of time to make up for the losses. Over the years, however, I have started focusing more on generating a passive income because I want a surer way of making money through my investments in 2022 and beyond.

Benefits of a passive income 

There are many advantages to buying stocks to generate a dividend income. One, dividends allow me to supplement my regular income. This extra cash can be used to invest in stocks or for my spending. Since a number of high-quality stocks offer relatively predictable dividends, it also gives me visibility on the earning potential. Another advantage is that income stocks offer a good alternative to leaving cash lying around in my current account, which earns zero interest. Also, if I make the right stock choices, my capital could grow over time, adding to my efforts at wealth creation. 

Step 1: spot the right FTSE 100 stocks

The first logical step for me, then, is to spot stocks that can both grow my capital and earn me a dividend income. In my opinion, considering FTSE 100 stocks is a good idea. These companies tend to be pretty stable, and many of them also have a long history of paying dividends. From oil biggies to utilities, there is a lot of choice among these to select the right stocks for me to buy. 

Step 2: figure out the time horizon

Next, I would carefully consider my investing time frame. For instance, it I were nearing retirement, I might like to buy and hold stocks for a long time so that I can continue to generate a monthly income. Otherwise, I might want to generate a high passive income for the next few years that could later be used to make any big purchases I had in mind. Or maybe I would like to do both. 

Whatever my goal, there are FTSE 100 options to consider. For instance, I think cyclical stocks could offer good dividend yields over the next three to five years. Economic activity is likely to pick up as the pandemic recedes further. Sectors like banks and other financial services as well as oil stocks look particularly good to me from the income perspective right now. 

For a longer time frame, I like dependable stocks like those in the utilities and healthcare sectors. Typically these stocks are defensives, whose demand is relatively stable irrespective of where we are in the economic cycle. Over a 10-year period, the chances of a downturn or two are quite likely. And these stocks are most likely to ensure me an uninterrupted generation of passive income during such times. 

Step 3: active monitoring

Last, I would monitor my investments actively irrespective of how predictable my investments’ performance has been in the past. There could be unexpected changes, like we saw during the pandemic, that put even the otherwise best performing stocks in a difficult place. Or it could create unexpected opportunities. I could make changes to my investments accordingly to earn the best returns. 

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.